A Canadian exporter finalises a cross-border supply agreement. Its counterparty passes initial screening. Then, two weeks before closing, the legal team realises the transaction documents contain no sanctions representations and warranties (contractual statements and commitments from each party about its sanctions status and obligations). Under Canadian law, this gap can expose both parties to liability under SEMA (the Special Economic Measures Act) and the broader regime administered by GAC (Global Affairs Canada), the authority responsible for administering and enforcing Canada's autonomous sanctions. The consequences – frozen transactions, regulatory scrutiny, potential enforcement – arrive faster than most in-house teams expect.
Drafting effective sanctions reps and warranties under Canada requires understanding the SEMA-based regime, mapping the counterparty's ownership and control structure, and aligning the contractual language with both GAC's enforcement posture and the stricter obligations that may apply under OFAC, OFSI, or EU rules. As of January 2026, Canada's autonomous sanctions regime covers a significant and growing number of designated persons and entities; any cross-border agreement that touches a Canadian party or Canadian goods must address this exposure directly.
This guide walks through the governing authority and legal basis, the drafting decision sequence, a regime-by-regime comparison, the most common risk flags, and when to involve sanctions counsel before the agreement is signed.
What governs sanctions reps and warranties under Canada?
Canada's sanctions regime rests on two primary statutory instruments: SEMA, which enables the government to impose economic measures in response to threats to international peace and security, and the United Nations Act, which gives domestic legal effect to UN Security Council resolutions. GAC administers both. The Consolidated Canadian Autonomous Sanctions List (the Canadian list) is GAC's primary published reference for designated persons; it operates alongside the UN Security Council Consolidated List.
For parties to a cross-border agreement, the practical consequence is straightforward. A transaction that involves a designated person, or an entity owned or controlled by one, is prohibited unless a specific ministerial permit has been issued under the applicable country regulations. There is no equivalent to OFAC's general-licence mechanism for most autonomous-sanctions contexts; authorisations are individually granted and narrow in scope.
Sanctions reps and warranties translate these statutory prohibitions into contract. They require each party to represent that it is not a designated person, that its beneficial owners are not on the Canadian list, and that the transaction as structured does not violate the applicable regulations. They also commit the parties to ongoing obligations – notice of any change in sanctions status, continued compliance throughout the agreement's term, and the right to terminate if a warranty is breached.
The position above covers the standard case. Your facts – the counterparty, the goods, the route, the regime in play – change the analysis. For an initial assessment of how Canada's regime applies to your transaction, contact Calder & Vance at info@caldervance.com.
Step 1 – Map the ownership and control structure before you draft
The first drafting step is not writing; it is investigation. Canada's regime applies not only to listed persons but to entities owned or controlled by them, and the ownership-and-control test under SEMA-derived regulations is qualitative as well as numeric – an important difference from the purely mechanical 50 percent or more threshold under OFAC.
Under OFAC's 50 percent rule, the test is aggregate ownership. Two designated persons each holding 30 percent of a target entity together trigger the threshold. Under SEMA, control can be established through non-ownership means – board composition, contractual rights, economic dependency, or management arrangements that give a designated person effective direction of the entity's affairs. This broader test means that an entity with no listed shareholder can still be caught if a designated person exercises de facto control.
In our experience, parties that rely solely on automated screening of direct shareholders regularly miss this. The ownership map should extend to at least two layers of beneficial ownership, flag any shareholder or board member against the Canadian list and the UN Consolidated List, and note any contractual relationship – supply agreements, licensing arrangements, loan facilities – that could constitute control. Only once that map is complete can the drafter accurately describe the warranty baseline in the agreement.
The practical output of this step is a sanctions diligence memorandum. That memo forms the factual record on which the representations are grounded. If the diligence later proves to have been inadequate, the representations in the agreement offer limited protection: GAC can still pursue regulatory enforcement against a party that should have known of a connection to a designated person.
Step 2 – Structure the core representations and the ongoing warranties
The core representations state facts as at the date of signing; the ongoing warranties commit the party to maintaining the same position throughout the life of the agreement. Both are necessary. A representation that is accurate at closing but becomes inaccurate three months later – because a shareholder is subsequently designated – creates exposure unless the warranty structure requires prompt notice and remedial action.
A well-drafted sanctions rep and warranty block under the Canadian regime typically covers the following elements:
- Status representation: neither party nor, to its knowledge, any of its beneficial owners, directors, or officers appears on the Consolidated Canadian Autonomous Sanctions List or the UN Consolidated List.
- No prohibited transaction: the transaction as structured does not violate SEMA, the United Nations Act, or the applicable country regulations.
- Permit status: where a ministerial permit is required, the party represents that it has been obtained and remains in force, or that no permit is required.
- Ongoing notification: each party warrants that it will notify the other promptly – and in any event within the window required under the applicable regulations – if any of the above representations becomes inaccurate.
- Termination right: if any party becomes a designated person, or if the transaction is otherwise prohibited by the Canadian regime, either party may terminate without penalty.
The notification window is a detail that is easy to overlook and consequential to get wrong. Under SEMA and the United Nations Act, there are statutory obligations to report dealings with designated persons and to disclose the existence of property owned or controlled by them. Those reporting obligations run to GAC, not only to the counterparty. A contractual warranty that requires notice to the counterparty "as soon as practicable" must be read alongside – and must not conflict with – the statutory disclosure timeline. Align the contractual window with the regulatory one; where doubt exists, the shorter period governs.
Step 3 – Calibrate the language against the cross-border regime
Cross-border agreements almost never sit under a single sanctions regime. A transaction between a Canadian seller and a European buyer, routed through a US correspondent bank, touches at minimum the Canadian regime, the EU Council regulations, and OFAC. Each regime has its own ownership test, its own listed-persons register, and its own enforcement approach. The sanctions reps and warranties must be drafted to address all of them or, at minimum, to allocate responsibility for compliance with each clearly.
The divergences matter in practice. Consider three:
- Ownership threshold: OFAC uses a mechanical aggregate-ownership test at 50 percent. OFSI and the EU use an ownership-or-control test that can be satisfied without any ownership at all. Canada's test under SEMA sits closer to the OFSI and EU model, recognising de facto control as a separate limb. A warranty drafted only to the OFAC threshold will be under-inclusive in a transaction that also has Canadian, UK, or EU nexus.
- Listed-person registers: the Canadian list, the SDN List (OFAC's list of Specially Designated Nationals and blocked persons), OFSI's consolidated list, and the EU consolidated list are not identical. A party may appear on one and not others. The reps and warranties should specify each applicable list, not simply refer to "sanctions lists" generically.
- Permit and licensing regimes: OFAC issues both general licences (standing authorisations for defined categories of transactions) and specific licences (case-by-case authorisations). Canada's regime offers specific ministerial permits but has a more limited general authorisation structure. If the agreement references a licence or authorisation, the language must distinguish between these regimes and confirm which instrument covers which leg of the transaction.
Where the transaction involves a US person or US-origin goods, OFAC's extraterritorial reach will apply regardless of the primary governing law. In our cross-border practice, we regularly advise on agreements where the governing-law clause specifies Canadian law but the payment route triggers OFAC jurisdiction simultaneously. The reps and warranties must address both, and the indemnity structure should allocate the risk of future regulatory divergence explicitly.
For transactions with a UK nexus, see our guide to sanctions reps and warranties in cross-border agreements and, for EU-specific drafting considerations, our companion guide on EU sanctions representations and warranties.
If a transaction has already been flagged, or a filing has been refused, an early review can preserve options that narrow with time. Contact Calder & Vance at info@caldervance.com for a confidential review.
Step 4 – Address the ministerial permit and the no-action gap
The absence of a general-licence mechanism in most of Canada's autonomous-sanctions programmes creates a structural gap that drafters must address directly. Under OFAC, a general licence may permit a class of transactions – humanitarian payments, wind-down activities, certain legal services – without requiring a separate application. Under Canada's regime, the equivalent authorisation is typically a ministerial permit that must be applied for individually and may take considerable time to issue.
This has a direct consequence for contract drafting. If the transaction or any component of it may require a permit – because it touches a designated person or an entity in a sanctioned country – the agreement should contain a conditions-precedent clause requiring the permit to be obtained before any obligation to perform arises. Drafting the transaction as unconditional, and then discovering partway through performance that a permit is required, places the performing party in a position where it must either breach the contract or breach the regulations. Neither outcome is acceptable.
The reps and warranties should also address what happens if a permit is applied for and refused. A force-majeure clause that covers regulatory prohibition is a partial answer, but it does not substitute for a bespoke sanctions-regulatory-change clause that specifically addresses the possibility of a new designation or an expanded country regulation during the term of the agreement. We have acted for clients on both sides of this issue – sellers seeking to enforce contracts that became subject to new designations mid-term, and buyers seeking to exit obligations they could no longer lawfully perform.
What are the most common risk flags in Canadian sanctions reps and warranties?
The single most common mistake is generic language that does not reflect the structure of Canada's specific regime. Boilerplate drawn from US-law agreements will refer to OFAC, the SDN List, and IEEPA. That language may be inadequate for a transaction governed by SEMA and the Canadian list. Regulators and courts read the contractual language against the applicable regime; a representation that does not cover the right list, or the right ownership test, provides weaker protection than the parties intend.
A second risk flag is the knowledge qualifier. Representations are commonly qualified to the representing party's "knowledge" or "reasonable knowledge." Under SEMA, this qualifier has limits. GAC's enforcement approach considers whether a party exercised due diligence proportionate to the transaction's risk profile. A party that limits its warranty to knowledge – without conducting the ownership-and-control investigation described in Step 1 – may find that the knowledge qualifier does not protect it if enforcement follows. The qualifier must be calibrated against the diligence actually conducted.
Third, and frequently overlooked, is the interaction between sanctions reps and warranties and the agreement's governing-law and dispute-resolution clauses. A sanctions warranty that creates a right to terminate is only as useful as the dispute-resolution process allows. If the agreement provides for arbitration seated in a jurisdiction where the counterparty has no assets, termination is a hollow remedy. Consider whether the governing-law clause, the seat, and the enforcement jurisdiction align with the sanctions risk profile of the deal.
A common myth in this area is that sanctions reps and warranties are primarily a US law concern, relevant only when an American party is involved. This is incorrect. Canada's regime imposes obligations on Canadian persons and entities regardless of the nationality of the counterparty, and on non-Canadian parties in respect of conduct that touches Canadian territory, Canadian goods, or Canadian financial infrastructure. Any cross-border agreement with a Canadian nexus should address the Canadian regime on its own terms, not simply by importing US-law language.
When to involve sanctions counsel
Sanctions counsel should be involved before the term sheet is agreed, not after heads of terms are signed. The ownership-and-control investigation and the regime-mapping exercise described in this guide are most efficiently conducted at the diligence stage, when the parties still have the ability to restructure the transaction or to walk away without contractual consequences.
Specific triggers that warrant immediate counsel involvement include: any counterparty with beneficial owners in a country subject to Canadian autonomous sanctions; any transaction involving dual-use goods or technology that may also engage export-control restrictions; any payment or settlement route that passes through a US correspondent bank (introducing OFAC's extraterritorial reach); and any acquisition of an entity in a sector – energy, defence, financial services – that has historically attracted designation activity.
In a recent matter, a financial-services business was completing a cross-border supply agreement with a counterparty in a jurisdiction subject to multiple overlapping sanctions regimes, including Canada's autonomous programme. The agreement contained standard boilerplate that did not reflect the Canadian list or the de facto control test. We reviewed the ownership structure, identified a non-listed intermediate entity that met the control threshold under SEMA, and reworked the reps and warranties to cover the correct list, the correct ownership-and-control test, and a permit-condition mechanism before any obligation to perform arose. The transaction proceeded on a documented and compliant basis.
For clients who handle cross-border transactions regularly, a standing template review – checking that your standard form addresses the current state of the Canadian list and any changes to GAC's enforcement guidance – is a proportionate risk-management measure. The Canadian regime has expanded in recent years; language drafted even two years ago may no longer reflect the current scope of designation activity or the current permit requirements.
For an assessment of your exposure under Canada's regime, or to have your transaction documents reviewed against SEMA and the applicable country regulations, contact Calder & Vance at info@caldervance.com.
Related practices
- Correspondent banking and de-risking – OFAC – sanctions risk management for cross-border financial flows and correspondent relationships
- Sanctions reps and warranties in cross-border agreements – multi-regime drafting guide for international commercial transactions
- EU sanctions representations and warranties – EU-specific drafting considerations for cross-border agreements